A cynical commentary about developments in the South African financial markets and the incomprehensible activities and pronouncements of bureaucrats and politicians.

Friday, 4 May 2018

MIKADO MOMENT

Fans of the
Savoy operas will immediately have noted the similarity between Ko-Ko, the Lord
High Executioner and Donald, President of the USA. Both have “little lists of
those who won’t be missed”. The more recent of these two list-makers has
identified the nations which most often vote in opposition to the USA at the
United Nations and which in consequence face the probability of America
chopping off aid and benefits. Alarmingly South Africa is on this list and the
punishment could be far worse and longer lasting than anything Ko-Ko had in
mind. It’s provng foolish to poke the bear and not believe that he will carry
out his threats.

Whether it’s
this policy that is finding support is of course impossible to tell, but solid
demand for US dollars is the big market story at present with our own runt
about 8% weaker against the greenback in just two months. However, those
inflows to the dollar don’t seem to be directed towards buying US shares or
bonds since neither of those prices are moving much. Conversely though, with
many JSE listed companies sensitive to a weaker currency, the local indices are
quite perky with resources leading the pack.

However, those
who like to do old fashioned value analysis still feel that there are very thin
pickings on the JSE. Earnings remain very low compared to prices and therefore
this is probably not a good time to buy. But the difficulty in using this
metric and indeed most other techniques, is that increasingly it appears naïve
to rely too much on published and even audited financial statements to obtain such
presumably useful parameters. This epidemic of unreliability is almost
certainly related to the rise in regulatory and compliance activity. This will
seem counter intuitive to outsiders but now that every call is recorded, every
meeting reported, and busybodies are frantically trying to ensure that the
playing field is level -- made harder because they have no idea what game is
being played on that field -- the market’s early warning systems have been
stifled. The incentives and opportunities to dig and ferret and chat and probe
and pass on a rumour have been removed and largely prohibited and so it is only
when a mess gets very large and smelly do the authorised mechanisms get
activated. It’s ironic that despite the massive growth in compliance activities,
clients and customers still get hurt. And what’s worse is that they are of
course indirectly paying for this unwanted monitoring of their “safety”. A
couple of scrupulous and honest front office personnel with long-standing
client relationships are worth a thousand over-qualified yet inexperienced and
clueless gumshoes listening to recordings, sifting through records and
composing ever longer disclaimers.

If there are
still any believers in hard tangible assets out there they probably already
know that at around sixteen and a half thousand rand each, Krugerrands are at
their cheapest in several years. The gap between this price and the JSE price
of New Gold, the exchange-traded fund that tracks the rand price of gold is
also at a low point. Time to switch from the ETF to the coin?

While there is
the usual feast of Super Rugby matches to help us each reach the national
average daily TV watching time of 7 hours and 2 minutes (yes really!)the one that probably deserves our attention
is the Cheetah’s play-off against the Llanelli Scarlets at
7:35 pm on Saturday (right after the Sharks match) in their Pro 14 campaign.
The press commentary is mostly rather gloomy about their chances, but this is a
side which often does surprise. And there’s an excuse to pop down to the bottle
store and get in a few Guinness since they are the tournament sponsor and also
deserve support.